If you think it’s too late to affect the amount you’ll pay in 2015 taxes, you could be wrong! You may be able to lower your tax burden and pay yourself at the same time by contributing to a traditional IRA (Individual Retirement Account). You have until April 18 to open an account or add to your existing IRA.
The amount of your IRA tax deduction(s) are limited if you or your spouse participate in an employee-sponsored retirement plan (e.g. a 401K at work) and your modified adjusted gross income (MAGI) is greater than $61,000 (single) or $98,000 (married). If neither you nor your spouse participate in an employee-sponsored plan, you both can deduct your contribution no matter what your income. If only one of you contributes to an employee-sponsored plan, your deduction will depend on your MAGI and income tax filing status.
Keep in mind that even if you can’t deduct your contribution, you can still make a contribution and take advantage of the tax-deferred earnings.
In addition to a tax deduction, depending on your adjusted gross income (AGI) you may be eligible to receive a Retirement Savings Contributions Credit (aka Saver’s Credit) from 10 to 50 percent of your retirement plan or IRA contributions up to $2,000 ($4,000 if married filing jointly.)
A traditional IRA allows you to defer taxes on the earning you contribute until you withdraw the money. You can make a contribution if you were younger than age 70 ½ in 2015 and you or your spouse have an income.
If you are under age 50, you can contribute up to $5,500 to an IRA. If you’re over 50, you are eligible to make an additional “catch-up contribution” of $1,000 for a total of $6,500.
When you begin taking money from your IRA, the money will be taxed as ordinary income. But since the money in an IRA is for retirement, you may be in a lower tax bracket and pay less income tax than you would during your wage-earning years.
If you need help determining if an IRA is right for you, contact me at 217-679-1676 or email.
The information provided here is intended as a convenient source of tax information. This information is general in nature, is not complete, and may not apply to your specific situation. You should consult your own tax advisor regarding your tax needs.